Monday, May 31, 2010

In New York the other night, I ran into my daughter’s favorite author, Mary Pope Osborne, whose “Magic Tree House” books I’ve read to the child at night, and a moment later, Scott Turow, who writes legal thrillers that keep people awake all night, and David Remnick, the biographer of President Barack Obama. Bang bang bang, one heavyweight after another. Erica Jong, Jeffrey Toobin, Judy Blume. It was a rooftop party in Tribeca that I got invited to via a well-connected pal, wall-to-wall authors and agents and editors and elegant young women in little black dresses, standing, white wine in hand, looking out across the Hudson at the lights of Hoboken and Jersey City, eating shrimp and scallops and spanikopita on toothpicks, all talking at once the way New Yorkers do.

I grew up on the windswept plains with my nose in a book, so I am awestruck in the presence of book people, even though I have written a couple books myself. These are anti-elitist times, when mobs are calling for the downfall of pointy-head intellectuals who dare tell decent people what to think, but I admire the elite. I’m not one of them — I’m a deadline writer, my car has 150,000 miles on it — but I’m sorry about their downfall. And this book party in Tribeca feels like a Historic Moment, like a 1982 convention of typewriter salesmen or the hunting party of Kaiser Wilhelm II with his coterie of plumed barons in the fall of 1913 before the Great War sent their world spinning off the precipice.

Call me a pessimist, call me Ishmael, but I think that book publishing is about to slide into the sea. We live in a literate time, and our children are writing up a storm, often combining letters and numerals (U R 2 1derful), blogging like crazy, reading for hours off their little screens, surfing around from Henry James to Jesse James to the epistle of James to pajamas to Obama to Alabama to Alanon to non-sequiturs, sequins, penguins, penal institutions, and it’s all free, and you read freely, you’re not committed to anything the way you are when you shell out $30 for a book, you’re like a hummingbird in an endless meadow of flowers.

And if you want to write, you just write and publish yourself. No need to ask permission, just open a website. And if you want to write a book, you just write it, send it to Lulu.com or BookSurge at Amazon or PubIt or ExLibris and you’ve got yourself an e-book. No problem. And that is the future of publishing: 18 million authors in America, each with an average of 14 readers, eight of whom are blood relatives. Average annual earnings: $1.75.

Back in the day, we became writers through the laying on of hands. Some teacher who we worshipped touched our shoulder, and this benediction saw us through a hundred defeats. And then an editor smiled on us and wrote us a check, and our babies got shoes. But in the New Era, writers will be self-anointed. No passing of the torch. Just sit down and write the book. And The New York Times, the great brand name of publishing, whose imprimatur you covet for your book (“brilliantly lyrical, edgy, suffused with light” — NY Times) will vanish (Poof!). And editors will vanish.

The upside of self-publishing is that you can write whatever you wish, utter freedom, and that also is the downside. You can write whatever you wish, and everyone in the world can exercise their right to read the first three sentences and delete the rest.

Self-publishing will destroy the aura of martyrdom that writers have enjoyed for centuries. Tortured geniuses, rejected by publishers, etc., etc. If you publish yourself, this doesn’t work anymore, alas.

Children, I am an author who used to type a book manuscript on a manual typewriter. Yes, I did. And mailed it to a New York publisher in a big manila envelope with actual postage stamps on it. And kept a carbon copy for myself. I waited for a month or so and then got an acceptance letter in the mail. It was typed on paper. They offered to pay me a large sum of money. I read it over and over and ran up and down the rows of corn whooping. It was beautiful, the Old Era. I’m sorry you missed it.

Garrison Keillor’s column appears regularly in The Baltimore Sun.

Source:

When everyone’s a writer, no one is

In a world where everything’s free on the web, what will happen to publishing

Wednesday, May 26, 2010

Perhaps one of the most interesting and colorful words in the English language today is the word “fuck”. It is the one magical word, which, just by its sound, can describe pain, pleasure, love, and hate.

In language, “fuck” falls into many grammatical categories. It can be used as a verb, both transitive (Mary fucked John) and intransitive (John was fucked by Mary). It can be an action verb (John really gives a fuck), a passive verb (Mary really doesn't give a fuck), an adverb (Mary is fucking interested in John), or as a noun (Mary is a terrific fuck). It can also be used as an adjective (Mary is fucking beautiful) or an interjection (Fuck! I'm late for my date with Mary). It can even be used as a conjunction (John is ugly, fuck, he's also stupid). As you can see, there are very few words with the overall versatility of the word “fuck.”

It can be used in an anatomical description -- “He's a fucking asshole.” It can be used to tell time -- “It's five fucking thirty.” It can be used in business -- “How did I wind up with this fucking job?” It can be maternal -- “Motherfucker.” It can be political -- “Fuck Clinton!”

It has also been used by many notable people throughout history:“What the fuck was that?” -- Mayor of Hiroshima“Where did all these fucking Indians come from?” -- General Custer“That's not a real fucking gun, is it?” -- John Lennon“Who's gonna fucking find out?” -- Richard Nixon“Why the fuck did that apple hit me?” -- Issac Newton“Heads are going to fucking roll.” -- Marie Antoinette“I could have used a fucking map.” -- Ulysses“Where the fuck is all this water coming from?” -- Captain of the Titanic“Any fucking idiot could understand that.” -- Albert Einstein“It DOES SO fucking look like her!” -- Picasso“Okay, I know... we'll build this BIG fucking wall to keep them out.” -- Emperor of the Ch'in Dynasty“I can't believe I just fucking said that.” -- Patrick Henry“Fucking backstabbers!” -- Julius Caesar“You want what on the fucking ceiling?” -- Michelangelo“Fellatio is not fucking!” -- Bill Clinton“Where is that fucking pizza guy?” -- Elvis“Why? Because its fucking there!” -- Sir Edmund Hilary“I don't suppose its gonna fucking rain?” -- Joan of Arc“Scattered fucking showers my ass.” -- Noah“I need this parade like I need a fucking hole in my head.” -- John F. Kennedy“What are the fucking chances I'm going to heaven?” -- Adolf Hitler“Hey, where the fuck are your turbans?” -- Christopher Columbus when he discovered the “Indians”.

Sunday, May 16, 2010

In a 1975 playoff game, the Dallas Cowboys were nearly out of time and facing elimination from the playoffs, down 14-10 against a very good Minnesota Vikings team. The Cowboys future Hall of Fame quarterback Roger Staubach had no very good options. He later said he dropped back to pass, closed his eyes and, as a good Catholic, said a Hail Mary and threw the ball as far as he could. Wide receiver Drew Pearson had to come back for the ball and, in a very controversial play, managed to catch the ball on his hip and stumble into the end zone. Angry Vikings fans threw trash onto the field, and one threw a whiskey bottle that knocked a referee out. After that play, all last-minute desperation passes became known as Hail Mary passes. (That was a very thrilling game to watch!)

And that is what Europe did last weekend. They threw a Hail Mary pass in an attempt to avoid the loss of the eurozone. Jean-Claude Trichet blinked. Merkel capitulated. Today we consider what the consequences of this new European-styled TARP will be for Europe and the world. We do live in interesting times.

(At the end of the letter I note that I will be speaking at the Agora Financial conference in Vancouver July 19-23. This is a wonderful conference and a lot of my good friends are speaking. They have extended their early-bird registration for one week for my readers. Join me!)

Also, I am finalizing the details on the next two Conversations with John Mauldin. The first will be on China, where I have two experts who disagree with each other. It will be fun and most enlightening. The next one will be on energy and oil. They will both be out in June.

We get a lot of positive responses to this service. Herb wrote about the last Conversation, “Wow. What a great discussion. What smart guests, how little BS. Congratulations. It’s the best of your Conversations that I’ve listened to.”

And ACK wrote: “Wow!! Just the most important discussion I have been treated to as an investor and fund manager this year or last. Your product is dreadfully underpriced, as it delivers more value and education than almost any other subscription that I have… Thanks so much… This particular conversation was just mind-blowing!”

Actually, we get that last comment almost every issue, as we somehow seem to connect the dots for different listeners. When we started, I promised to do 6-8 a year, and we have already posted 6 timely Conversations in the first 4 months of this year, including my special Biotech Series as well as the Geopolitical Series with George Friedman.

For new readers, Conversations with John Mauldin is my one subscription service. While this letter will always be free, we have created a way for you to “listen in” on my conversations (or read the transcripts) with some of my friends, many of whom you will recognize and some whom you will want to know after you hear our conversations. Basically, I call one or two friends each month and, just as we do over dinner or at meetings, we talk about the issues of the day, back and forth, with give and take and friendly debate. I think you will find it enlightening and thought-provoking and a real contribution to your education as an investor.

I can get some rather interesting people to come to the table. Current subscribers can renew for a deeply discounted $129, and we will extend that price to new subscribers as well. To learn more, go to http://www.johnmauldin.com/newsletters2.html [1]. Click on the Subscribe button, and join me and my friends for some very interesting Conversations. (I know the price says $199 on the site, but for now you will only be charged for $129 – I promise.)

And we are starting a renewal cycle with the subscriptions and have found a small bug in the software we purchased to handle them. Renewals are therefore not instantaneous. It may take a day, and for that we apologize. We are fixing it. And now on to Europe.

Europe Throws a Hail Mary PassOn Thursday of last week Jean-Claude Trichet, president of the European Central Bank, said three times “Non! Non! Non!” when asked in a press conference if the ECB would consider buying Greek bonds. His exclamation was accompanied by a forceful lecture on the need for eurozone countries to get their fiscal houses in order, some of which I quoted in last week’s letter. Trichet was remonstrating about the need for the ECB to remain independent, and was rather definite about it.

Then on Sunday he said, in effect, “Mais oui! Bring me your Greek bonds and we will buy them.” What happened in just three days?

Basically, the leaders of Europe marched to the edge of the abyss, looked over, decided it was a long way down, and did an about-face. It was no small move, as they shoved almost $1 trillion onto the table in an “all-in” bet.

Bailing out Greece is very unpopular in Germany. So why did Chancellor Merkel agree to do so? This is the story that has come out in the last few days.

“French President Nicolas Sarkozy threatened to pull out of the euro unless German Chancellor Angela Merkel agreed to back the European Union bailout plan at a summit last week in Brussels, El Pais newspaper said.

“According to El Pais, which didn’t say how it obtained the information, Spanish Prime Minister Jose Luis Rodriguez Zapatero said (in a private meeting of his Socialist politicians) that Sarkozy demanded ‘the commitment of everyone, that everyone should help Greece, everyone according to their means, or France would reconsider the situation of the euro.’

“Sarkozy banged his fist on the table and threatened to quit the euro, which forced Merkel to cave in, Zapatero told the Spanish politicians, according to the El Pais account.

” ‘If at this point, given how it’s falling, Europe isn’t capable of making a united response, then there is no point to the euro,’ the newspaper quoted the French President as saying.

“It wouldn’t be the first time Sarkozy linked the fate of the euro to a willingness to support Greece. On March 7, before meeting Greek Prime Minister George Papandreou in Paris, Sarkozy said: ‘If we created the euro, we cannot let a country in the eurozone fall. Otherwise there was no point in creating the euro. We must support Greece because they are making an effort.” (Bloomberg)

I find this interesting when I compare it to the analysis from my friends at Stratfor:

“Germany now senses the opportunity to reform the eurozone so that similar crises do not happen again. For starters, this will likely mean entrenching the European Central Bank’s ability to intervene in government debt as a long-term solution to Europe’s mounting fiscal problems. It will also mean establishing German-designed European institutions capable of monitoring national budgets and punishing profligate spenders in the future. Whether these institutions will work in the long term – or fail as attempts to enforce Europe’s rules on deficit levels and government debt have in the past – remains to be seen. But from Germany’s perspective, they must.”

Well, at least France and Germany are not looking at each other over the Maginot Line. But it is the age old-struggle: who will lead?

There are so many implications of this latest action, it is hard to know where to begin.

“What is the plan? First, European governments have committed e500bn (e440bn in loan guarantees to eurozone members in difficulties, and a e60bn increase in a balance of payments facility). Second, the International Monetary Fund will, it appears, put up an additional e250bn ($320bn, f215bn). Third, the European Central Bank has, to the chagrin of Axel Weber, president of the Bundesbank, decided to purchase the bonds of members under attack. Finally, the US Federal Reserve has reopened swap lines, to provide foreign banks with access to dollar funding. This is a panic-driven response to market panic. It reminds us of the autumn of 2008.” (Martin Wolf,

Above all, this is a move to buy time. There is enough in this fund to purchase all the expected debt of Greece, Portugal, and Spain for three years. The money could actually last a lot longer, as Spain might not need to tap the fund for some time.

There were clearly some other quid pro quos that came out of this weekend. Both Spain and Portugal announced new austerity moves, which will help them get back below the 3% deficit limit mandated by the Maastricht Treaty within (they hope) a few years. It was the usual combination of tax increases, some budget cuts, and across-the-board pay cuts for government workers. These are very left-wing socialist governments, and their announcements were not popular with their followers or the unions. But they are enacting these cuts before a durable recovery has come about. They are committing themselves to a very rough road.

But it is not just the PIIGS countries that are out of compliance in Europe. Look at the following chart from Note that France has a budget deficit of over 8%. There are going to have to be austerity measures enacted all over Europe.

Notice that Ireland has the largest deficit, at 14.7%. This is in spite of (or more aptly because of) the enactment of severe austerity measures, far beyond what Greece, Portugal, and Spain have contemplated. And what has that gotten them? An economy that has shrunk by almost 17% in the last two years, 14% unemployment, and a country in the grip of outright deflation. Property prices have fallen by 34% and are still falling. Their banks are in shambles.

And their debt-to-GDP is rising, because even as they borrow their GDP is falling. It is hard to cut that ratio when GDP is falling. If GDP falls 20%, then the debt-to-GDP ratio rises by 25%. And that means your interest-rate costs are an ever bigger chunk of your tax revenues.

Let’s be clear. These austerity measures are not growth plans. They are not designed to help countries grow their way out of the problem. There is no reason to think that if Greece enacts the measures that have been proposed, that what happened to Ireland will not happen to them. It almost certainly will. Credible estimates I have seen suggest that the Club Med countries will see their GDP drop at least 4% this year.

It is not just the PIIGS. All of Europe will be making cuts. And in the short term that is going to be a drag on growth and a headwind for the euro.

It’s More Than Just Government DebtA recent study by Portuguese economist Ricardo Cabral [2] shows that the PIIGS have even deeper problems. With the exception of Italy, they have a large percentage of their debt owned by foreigners. (http://voxeu.org/index.php?q=node/5008 [3])

“Greece, for example, has approximately 79% of government gross debt held by non-residents and has a net international investment position of -82.2% of GDP. Interest payments on public debt represented nearly 40% of Greece’s already large 2009 budget deficit – and this is set to increase.”

These interest payments leave the country, making their already bad trade imbalances even worse. And the taxes that might be paid on the interest go to other countries, too.

Cabral looks at the average external debt during 16 debt crises over the past 30 years. On average, Greece, Spain, and Portugal are now 30% worse off than these other countries when they went into crisis and restructured debt.

Cabral notes (as I have done in past letters) that there are no good choices. Continuing to increase debt owed to foreign creditors just digs a deeper hole that they must dig out of. His conclusion is that some sort of debt restructuring will ultimately be required.

Martin Wolf writes this week of the problems facing the eurozone:

“… the story of the eurozone economy has, in consequence, been one of divergence, not convergence. The rough external balance masked the emergence of countries with huge current account surpluses and corresponding exports of capital, notably Germany, and of others with the opposite condition, notably Spain. In countries with weak domestic demand and low inflation, real interest rates were high; in countries with strong demand and higher inflation, the reverse was true. The result is not just huge fiscal deficits, now that private-sector spending has collapsed, but a need to regain lost competitiveness. But, inside the eurozone, this is possible only with falling wages, higher productivity growth than in Germany (and so soaring unemployment), or both.”

Take a look at the charts below from his column. The PIIGS have much higher labor costs per unit of production than Germany, as much as 50% higher! Germany runs large trade surpluses while the Club Med countries have large trade deficits.

A country may want to reduce its government debt, its businesses and individuals may want to reduce their debt, and they might like to run a trade deficit. However, the rules of accounting are such that you can only do two of the three.

The reality is that the coming austerity measures are going to reduce the ability of the PIIGS to buy products from outside their countries. Germany’s surplus will thereby suffer.

Let’s look at yet another set of graphs from to get a handle on the problem facing these countries. Their unemployment is already high and is going to get worse. They are not enacting pro-growth policies. Spain, for instance, has a rule that a company must pay a one-month severance fee for each year an employee has worked. Thus, if you have worked for ten years, you get a ten-month severance allowance if you are laid off. What that does is discourage new employment, and it means that newer workers are laid off first. That is one of the reason Spain has such a high unemployment rate among young people.

The Grand MisallocationWhat this Euro-TARP does is take money from mostly good credit and give it to weak credit. It will crowd out private savings that go into private enterprise (which is where jobs come from) and put it to unproductive uses in the government debt of weak countries.

There are only two ways to grow an economy: you can grow your population or you can increase productivity. That’s it. The Club Med countries are not growing their populations appreciably, as their birth rates are low. And you increase productivity by investing private capital into businesses, the way the Germans have done, which is why their labor unit costs are so low compared to their competition.

Euro-TARP almost mandates that capital be misallocated into non-productivity-enhancing government programs and debt.

Europe is run by Keynesians (as is the US). They see everything as a liquidity problem. And sometimes it is. But the PIIGS have a debt problem. And you don’t cure a debt problem with more debt unless you have a clear path to grow your way out of the debt. But as I have demonstrated, there is no clear path to growth with the current policies. They will produce deflationary recessions, lower government tax receipts from reduced GDP, and higher unemployment.

At the end of the day, Greece will just have more debt. Perhaps Spain and Portugal can work through their problems, but that will be very difficult and will involve considerable economic pain. Italy can succeed if it decides to.

This new program simply buys time to try and figure things out. It is Germany saying, “Ok, I give you 3-4 years. But don’t come back asking for more.”

All this does is bridge to the middle of the decade, when the truly massive health and pension promises made all over Europe must be dealt with. The US has the option of raising taxes, reducing benefits, and means testing, should we so choose to do so to meet the demands of entitlement problems. Europe already has tax rates that are high and growth-inhibiting. The entitlement problems in many countries are more onerous, and their working populations are not growing.

This is just the beginning of their woes. They have a long way to go and a short time to get there. Can it be done? Yes, of course. But it is going to require a great deal of change. I hope they pull it off, I really do. I have been to most of Europe and love every bit I have seen. The world is better off with a united Europe.

That being said, I have my doubts that the European Union in its current form will exist in 5-7 years. I hope I am wrong.

One implication. The euro is on its way to parity with the dollar. So is the pound. That is going to help their exports vis-a-vis the US. Watch the yen fall rather sharply over the next few years. Senators Schumer and Graham gripe about China. What are they going to say about Europe, Britain, and Japan, all of which are on course to premeditated devaluation? This is going to be just one more challenge for businesses in countries with the world’s stronger currencies.

Another side bet? The ECB says it will sterilize those government bonds it buys (meaning, it will make sure it does not add to the money supply). My bet is that when deflation starts to run throughout Europe, the ECB will decide that maybe not so much sterilization is required after all.

New York, LA, and ItalyAs I noted above, I have cleared my schedule to be at the Agora Financial Conference in Vancouver, July 19-23. They have a truly great line-up of speakers. I suggest you go to http://agorafinancial.com/vancouver2010/ [4] and look at the program and then go ahead and register.

This week, I had to lay over in Montreal due to bad weather in Chicago, which meant I had to get up at 2:45 am to make a flight to get me back to Dallas in time for a speech. Ugh. I am fairly used to travel, but I make a point not to push it. My body just needs my 8 hours’ sleep, and sadly I can’t sleep on planes, unlike Dennis Gartman, who can sleep anywhere. It really kicked my butt.

On Monday I fly to New York for a day, then two nights in Stamford, Connecticut, speaking to Pitney Bowes execs. I am looking forward to Monday night, when I get to have dinner with Art Cashin, Greg Weldon, and Cliff Draughn (coming up from Savannah) – we’ll hash over the problems of the world.

Then it’s a quick trip to LA the following week, to meet with a team of people who are helping us redesign our websites and services to you, gentle reader. We are in for a major upgrade and I think you are really going to like it.

And then home, where I will stay until June 3, when the whole family (seven kids and spouses, grand-babies) takes a two-week vacation to Italy. I am going to stay over and speak at the Global Interdependence Center Conference in Paris, June 17th and 18th, with my good friend (and euro-bull) David Kotok and other luminaries. There will be a lot of central banker types, and if you want to get a feel for what’s happening in Europe you should come. Information is at www.interdependence.org [5].

We have been planning (or Tiffani has) for the Italy trip. I really can’t wait, as it’s going to be a ton of fun. Thanks for all the suggestions as to where to go and what to see and where to eat! It has been over 25 years since I was in Italy, and that was just a few days in Rome and Venice. This time it’s two full weeks, with a week in Rome and Venice and then a week in Tuscany, then to Paris, and then back to Tuscany and Milan. And since we decided to go, the euro has fallen 25%. That helps a lot! I used miles to take everyone, but hotels are a real expense. Every little bit helps.

It is once again late and time to hit the send button. Enjoy your week.

Tuesday, May 11, 2010

The lead in this morning’s paper WSJ provides all necessary guidance for global wealth holders: “The European Union agreed on an audacious €750 billion ($956 billion) bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide.” This weekend’s behavior demonstrates without equivocation the thesis we have been following: naturally occurring credit deflation will be met with an overabundance of monetary inflation that will hyper-inflate the global economy. (Please see the piece we distributed last week for a comprehensive analysis of our thesis and our expected outcome.)

Global policy makers continue to demonstrate that when push comes to shove they will forcefully apply policy that sustains the near term nominal values of financial assets. They continue to choose to use their unique powers to cover all bad bets with paper money and credit that only they can manufacture. In doing so, they claim victory when nominal financial asset prices predictably rise, as they must, and they hide the loss of real wealth denominated in their diluting paper currencies. The stock of real wealth is the same as it was a week ago and at every point between then and now, though there is a trillion more dollars (€750 billion) in the global system.

The EU is effectively proclaiming; “if you pour our brew down the drain we are just going to make more of it.” To defend the Euro, something has to be sold against it. The Fed (the tallest midget) has re-opened the USD swap line to the EU so that newly-digitized dollars can be sold for Euros in the market. Clearly, the bailout is USD bearish – not Euro bullish. If the EU was serious about saving the Euro, then the ECB would have to dump its gold and hike funding rates. They are going “all in” with a six of clubs. In the current backdrop it seems preferable for the Fed to inflate immediately, rather than the ECB, given the relative strength/weakness of the USD/EUR. This is the same playbook global central banks have been following for a while. The mere fact that all major currencies today need to be defended wreaks of fraud. If something is as it seems there is no need to defend it.

Sunday, May 9, 2010

A number of high-frequency firms stopped trading Thursday in the midst of the market plunge, possibly adding to the market’s selloff.

Tradebot Systems Inc., a large high-frequency firm based in Kansas City, Mo., closed down its computer trading systems when the Dow Jones Industrial Average had dropped about 500 points, said Dave Cummings, founder and chairman of the firm. [Tradebot says it often accounts for about 5% of U.S. stock-market trading volume]. Tradeworx Inc., a N.J. firm that operates a high-frequency fund, also stopped trading during the market turmoil, according to a person familiar with the firm. . . .

The withdrawal of high-frequency firms from the market didn’t necessarily cause the downturn, but could have added to it, some market experts say . . . Technical factors that high-frequency firms and other quantitative funds use to trade likely also played a part as the selling accelerated. When the market hits certain levels as it falls, these firms’ computers are programmed to sell automatically as protection against further losses.”

HFT are like umbrellas on a sunny day. At the first sign of rain, they take their umbrellas back.

They have no market utility whatsoever — other than demonstrating the overwhelming corruption of the now publicly traded exchanges. They should not be for-profit companies, as their behavior demonstrates they are little more than whores and thieves.

I guess the commies were right — the capitalists will sell you the rope to hang them with . . .